Why is stock market down today? Sensex drops over 700 points, Nifty crashes 1% - Top 3 reasons explained
The Indian stock market suffered strong losses in intraday trading on Thursday, 22 October, with the Sensex and the Nifty 50 dropping almost 1%.
The Sensex declined over 700 points, or nearly 1%, to an intraday low of 73,005, while the Nifty 50 dropped over 250 points, or 1.1%, to the day's low of 22,555.
The selloff was widespread and even deeper in the mid- and small-cap pockets, as the BSE 150 Midcap and 250 Smallcap indices crashed up to 2%.
Equity benchmarks have been down for three consecutive sessions now. In these three sessions, the 30-share pack has declined over 1,700 points, or 2.3%, while the Nifty has crashed nearly 600 points, or 2.6%.
Let's take a look at three key factors behind the fall in the stock market:
Brent crude now trades above $110 per barrel, fuelling concerns over its impact on the overall Indian economy and corporate profitability.
Escalating tensions in West Asia are driving oil prices higher. According to Reuters, attacks by Yemen's Iran-aligned Houthis in Saudi Arabia prompted the United States to order some diplomats and family members to leave its missions in the Kingdom.
"Strong external headwinds in the form of elevated crude prices and high US bond yields are emboldening bears to build short positions in the market. This is the reason why the market is declining even on days of positive institutional FII and DII buying, like yesterday," said V K Vijayakumar, Chief Investment Strategist, Geojit Investments.
To some extent, caution ahead of next week's US Federal Reserve interest rate decision following the October 27-28 policy meeting is also weighing on sentiment, as a surprise rate hike could exacerbate foreign capital outflows from Indian stocks, which have crossed the ₹3 lakh crore mark this year.
Even though the market sees a low chance of a rate hike this time, a significant majority of experts see another rate hike in December.
As per Reuters, the CME's FedWatch Tool shows traders see a 16% chance of a rate hike next week, but are discounting a 90% likelihood of an increase in December.
Since oil prices have been up for most of the year, inflation has risen globally, prompting central banks to tighten their monetary policies. The US Fed, Bank of Japan, and the Reserve Bank of India are among the central banks that raised interest rates in their latest policy meetings.
The Indian rupee declined by 12 paise to 94.50 against the US dollar in early trade on Thursday amid elevated crude oil prices.
In the previous session, the Indian rupee strengthened amid by optimism over a potential India-US trade agreement following US President Donald Trump’s comments indicating that a deal could be announced soon.
Jateen Trivedi, VP Research Analyst - Commodity and Currency, LKP Securities, said while RBI measures to regulate dollar buying, including dedicated banking arrangements for oil-marketing companies, continue to support the currency, brent crude trading above $110 remains a key headwind, potentially limiting further appreciation.
"The rupee could face resistance in the 94.25–94.40 zone," said Trivedi.
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